Tags: Ukraine | Russia | Putin | bonds

Ukraine Short Sellers Bail on Losing Wagers as Bonds Post Rally

Wednesday, 28 May 2014 03:34 PM

Bearish bets against Ukrainian dollar bonds are backfiring as a thaw in the country’s conflict with Russia spurs the longest winning streak in four years.

Money managers more than doubled short positions on Ukrainian dollar debt in the first part of the year, sending them to $846 million on April 30, according to Markit. Investors have since pared back the wagers by 23 percent to $655 million as the bonds surged an average 7.3 cents this month to 93 cents on the dollar.

Bearish investors are absorbing losses as the election of President Petro Poroshenko, who has pledged to visit Ukraine’s eastern regions to end fighting with rebels, and signs from Russia it’s seeking to defuse tensions helped sustain bond gains for a 10th straight day yesterday. Investors had pushed up bets Ukraine’s debt would tumble as escalating conflict with separatists in the country’s east fueled concern the country was on the verge of civil war.

“Presidential elections helped to give hope,” Ogeday Topcular, who oversees $300 million of assets at RAM Capital SA in Geneva, said in an e-mailed response to questions. “I’m still expecting volatility for Ukrainian assets as well as for its political and economic situation, but I know there are investors out there believing the worst is over.”

Cost to Borrow

The market value of Bank of America Corp.’s U.S. Dollar Ukraine Sovereign Index climbed $1.2 billion to $14.9 billion in May. Bets the value of the former Soviet republic’s obligations would fall surged to a one-year high of $863 million in March, according to Markit, a London-based provider of financial information.

The yield on Ukraine’s $2.6 billion of 9.25 percent bonds due 2017 tumbled 0.21 percentage points to 9.52 percent at 1:30 p.m. in New York. Investors have pared short bets on the securities to $181 million in nominal value, from as much as $256 million in March, Markit data show.

The cost for short sellers to borrow the bonds for one year has climbed to 1.5 percent, versus an average of about 0.3 percent for European government bonds, the data show.

European Union leaders are putting off further sanctions on Russia after President Vladimir Putin pulled troops from the country’s shared border and pledged to work with the winner of Ukraine’s May 25 election.

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Bearish bets against Ukrainian dollar bonds are backfiring as a thaw in the country's conflict with Russia spurs the longest winning streak in four years.
Ukraine, Russia, Putin, bonds
Wednesday, 28 May 2014 03:34 PM
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